It's no contest

PATRICK GOLDSTEIN

It wasn't so long ago that, after putting in years building up his career, Denzel Washington finally cracked the $20-million star salary club. But now he's taking a sizable pay cut to star in the upcoming 20th Century Fox film "Unstoppable" after the studio threatened to pull the plug on the picture in order to get its costs down.

David Fincher used to make $8 million to $10 million per picture, along with a nice piece of first-dollar gross, as an A-list director. But he's taking considerably less money -- and no first-dollar gross -- to get his new Sony Pictures film, "The Social Network," off the ground.

The same goes for "Dinner for Schmucks" star Steve Carell and director Jay Roach. They may be two of the top comic talents in the business, but the duo aren't getting their usual salary quotes for the upcoming Paramount movie. When Julia Roberts told Disney she wouldn't cut her salary to star in the recent comedy "The Proposal," the studio bailed on Roberts, hiring Sandra Bullock for even less than what it had offered Roberts. The movie turned out to be one of the summer's biggest comedy hits.

What's going on here? In Hollywood, whenever a studio executive would sit down to negotiate with an agent for an actor, writer or filmmaker, one of the first questions volleyed across the table was: What's your client's quote? If you'd written, directed or starred in a big hit, or even enjoyed a couple of modest successes in a row, your quote went up. And unless you ran off to make some nutty labor-of-love indie film where everyone committed suicide in the third act, your salary level was assured. That quote stuck like glue. Even after a few stinkers, a big star could still get their $15- or $20-million fee.

Not anymore. For basically everyone except Will Smith, salary quotes have evaporated, simply vanishing into thin air, as have the much-coveted first-dollar gross deals that top actors and filmmakers used to get. As one successful producer put it: "Quotes and first-dollar gross have just flown out the window -- the studios simply won't make those deals anymore," he explained. "It's all about what the role is worth in that particular movie. The studio pays for the lead actor or actress, but after that, well, the talent is just getting grinded. Everyone else is lucky to be working."

(You'll notice that no one is quoted by name here because, in addition to the natural Hollywood aversion to talking about salaries, the studio chiefs don't want to look like they're gloating about reining in talent costs -- although they often are, gloating that is -- while the agents and managers don't want their clients to think that they've been largely powerless to stop the new austerity measures, for fear that their talent will skedaddle to another agency.)

In Hollywood the new mantra is: "cash break zero." Instead of paying out first-dollar gross, where top talent would start collecting huge wads of cash right off the top from the very first box-office receipts, the studios are now constructing deals where the talent participates in the profits from a film only after the studio has recouped both its production and marketing costs. The new arrangement can still lead to huge windfalls -- in part because the studios are now giving top talent a far bigger piece of the home video take than they could get before. But the talent only reaps the rewards if they are willing to bet on themselves and can deliver a hit.

Just ask Michael Bay, who has boasted that he made $80 million from his share of the box office (and merchandising) from the first "Transformers" film. Director Todd Phillips is also enjoying a lucrative payday from Warners after making "The Hangover," where he gave up a chunk of his up-front salary in return for a bigger piece of the back end. But not every movie is a monster hit. In the new "cash break zero" universe, if a film flops, or simply underperforms, the star isn't walking away with the first batch of money that comes rolling in. If the studio doesn't get to its break-even point, the talent (except for their reduced up-front salary) is walking away empty-handed.

Why did the movie studios finally get tough with talent? And is this really good for the movie business? Bad for talent? Or just a rare sign of fiscal sanity?

In Hollywood, everything revolves around leverage. When the business was flush (and at some point, it will be again), talent had the edge. If one studio wouldn't do a deal, usually someone else surely would. But in lean times, it's the studios who have all the muscle. While some talent reps smell collusion, it's more likely that the talent is being hurt because of the way film budgets are put together. At its most basic, a movie has below-the-line costs and above-the-line costs. Below-the-line costs are basically the actual production expenditures on a film, including special effects, soundstage rentals and crew salaries.

Shift in power

Those are essentially fixed costs -- call them unmovable parts -- whether it's union salaries for the crew or the cost of filming each day, either on location or at a studio soundstage or special effects house. Since no one wants to rob a movie of its production value, which is ultimately what wows an audience, a studio can't simply say "Shoot the picture in 60 days instead of 80." So when a studio tells a producer to cut 10% out of a film's budget, guess what gets cut? The negotiable part: the cost of talent.

So today, the actors who used to make $15 million are making $10 million. The filmmakers who used to make $10 million are making $6 million. The writers who used to get a three-step deal, guaranteeing payments on a series of rewrites, now get one. As one prominent agent put it: "In terms of prices and quotes, everyone is in free fall. It's just brutal out there. The balance of power has totally shifted from our side to their side."

Studio chiefs say that in the old days -- meaning five years ago -- everyone was enjoying boom times. Year after year, DVD revenues kept soaring. In an up market, it was easy to be generous with back-end profits, since it looked like there was plenty of profit to go around. The studios didn't mind if the talent got rich, just as long as it wasn't at the studios' expense. But times have changed.

"Two years after you'd made a movie, you'd look at the P&L; [profit and loss] statement and the numbers always turned out better than they were when you'd greenlit the movie," says one top studio executive. "Even a movie that you'd thought was a break-even proposition turned out to be nice moneymaker. But now it's the complete opposite. The DVD revenues keep going down. You look at a movie two years later and the numbers aren't anywhere near where you'd originally projected them. When the Walt Disney Co. reports earning losses in back-to-back quarters, it's very compelling evidence that the entire business is in trouble."

The steep downturn in the DVD market, where revenues are down close to 25%, might have been enough in itself to prompt studios to get tough with talent. But with marketing costs still skyrocketing, with the collapse of the capital markets leading to far less money pouring in to help studios assemble film slates, something had to give. According to another popular theory, the writers strike turned out to be incredibly bad for talent -- notably writers -- since the months of enforced production stoppages gave studios a rare opportunity to sit back and analyze their business, a process that had especially disturbing consequences for talent.

"It's never a good thing when studios have time to think, especially if they're going to be thinking -- exactly why are we paying all these people all this money?" one top talent rep said. "They started looking at their overall TV and movie deals and before you knew it, a ton of talent had lost their deals, because the studios had the time to study who'd actually made them money and who hadn't delivered the goods."

New austerity

The end result is a huge recalibration of the money being paid out to talent, especially in an era where a surprisingly large percentage of the biggest hit films, such as "Up," "The Hangover," "Star Trek" and "Transformers," are star-free movies, potential franchises that involve interchangeable parts. There are some who see this new austerity as a potential boost for creativity. If studios can make movies for less money, in theory the studios who still retain any artistic ambitions -- all two of them -- could greenlight some riskier, more filmmaker-friendly efforts, knowing that the price tag would be far less than it was a few years ago.

But right now everyone is still trying to get their bearings. In the old days -- like 2005 -- when a studio chief told a talent agent that his meal ticket would be taking a pay cut, the agent would act offended, loudly complaining that the studio's offer was an insult. The star would never stand for that kind of abusive treatment.

But today? "Everyone has been going through all the stages, from denial to anger to rationalization to acceptance," says one high-level studio executive. "But the world has really changed. I think most of the talent is in the acceptance stage now."